European road freight rates trending down

Thursday, November 08, 2012

European road freight rates have fallen for the last five months, according to an index published by the London-based transportation research and consultancy firm Transport Intelligence (Ti).
According to the new international road freight index, compiled by Ti using data provided by European freight service provider, Freightex, road freight rates have fallen 7 percent in the past five months from their peak. By the end of May, the index (based on actual transactions settled in euros) was 21.2 percent higher than in May 2010, the starting point for the index. After this date, however, rates have fallen consistently.
“The rise in prices up to May 2012 had several factors behind it,” Ti said. “Firstly, the market was undergoing a substantial ‘bounce-back’ from the crisis point of 2009, when prices crashed. Quantifying the effect of this is difficult as rather than settle back to equilibrium, prices have remained volatile. This volatility appears to be a structural issue, both in terms of demand and supply in the market.”
Ti chalked up the fall in rates over the past five months to falling demand in Europe, with capacity yet to read. The firm added that there are large differences in demand between southern European markets and the rest of Western Europe.
"Unsurprisingly, demand is very weak out of Spain, with haulers reporting as much as a 10 percent decline in volumes," Ti said. "For the rest of Europe, demand is either flat or growing, but it is hardly fulfilling expectations. A sentiment across the sector is that demand is highly unpredictable."
Ti also noted some major shippers in Europe have sought to reduce their dependence on forwarders and large road transport companies.
"There has been some change in major shippers’ purchasing strategies," the report said. "Some of the largest consumer goods companies have been looking to reduce their business with forwarders and larger providers, and increase their direct business with medium-sized road freight transport companies. This has only been partially successful as the shippers have encountered some problems with capacity availability in tight markets. They have also suffered from poor customer service levels. However, this trend may have an impact on the ability of larger (less-than-truckload) providers and forwarders to pass on higher costs to customers."
“Transparency of rates allows consignors to easily check if they are getting the appropriate price for the services they require, or to support and analyze the costs of entering new markets,” said Freightex Chief Executive Officer Tim Phillips. “Carriers can also use it to discuss increases in rates based on real market knowledge.” - Eric Johnson